Telemarketers Celebrate Rare Regulatory Win

Written by William I. Rothbard on Tuesday, April 3rd, 2018

For years, with every unwelcomed – and at times infuriating – robocall Americans received, the tide of consumer and regulatory backlash against the telemarketing industry steadily rose toward an inevitable crashing crescendo. The dam finally gave way in 2013, when the Federal Communications Commission, which enforces the Telephone Consumer Protection Act (“TCPA”), issued new regulations requiring autodialing telemarketers to have “prior express written consent” (“PEWC”) to pitch an offer to a consumer, even one with whom they’d recently done business. This meant that a seller or its telemarketing vendor, using an auto-dialer or artificial or prerecorded voice, had to get a signed written agreement (e-signature permitted) upfront from every single consumer they wanted to call or text, clearly authorizing the contact.

PEWC posed an existential crisis for telemarketers. They had to comply, but how could they, when it would require them to get individualized written prior consent from consumers with whom they’d had no previous contact, whose numbers they obtain in the thousands from list brokers, marketing partners, and the like? Somehow, the industry survived this body blow, although many individual companies were knocked to the canvas by often huge multimillion dollar class action settlements and judgments for PEWC violations.

With consumer complaints still flooding in, in 2015 the FCC doubled down on PEWC, adding to the industry’s regulatory burden by issuing still more expansive rulings. Its 2015 “Omnibus” Order addressed three important TCPA coverage issues: (1) the definition of an automatic telephone dialing system (“ATDS”); liability, if any, for calls/texts to reassigned numbers; and (3) revocation of consent. With regard to ATDS, the Order held that the definition includes equipment that has not only the “present” capacity to deliver random, sequential, automated calls/texts, but the “potential” capacity and functionality to do so – therefore having the apparent effect of encompassing ordinary smartphones. As for reassigned numbers, it stated that if a consensual call is made to a party’s number, but that number has been reassigned to a nonconsenting party, the call to the reassigned number violates the TCPA—except in the instance of a one-call safe harbor. Concerning withdrawal of consent, the FCC chose not to prescribe the exclusive means for consumers to revoke consent, instead providing that consent can be revoked at any time and through any reasonable means that clearly expresses a desire not to receive more messages.

Disturbed by the breadth and ambiguity of the 2015 Order, over a dozen entities appealed to the D.C. Circuit Court of Appeals in ACA Int’l v. FCC . Last month, two and half years later, it ruled. In a significant win for the industry, the court set aside the FCC’s definition of an ATDS and vacated the FCC’s approach to calls placed to reassigned numbers. It upheld, however, the FCC’s broad approach to a party’s revocation of consent.

ATDS:The court rejected the FCC’s attempt to impose TCPA liability on the use of a device “having the capacity to function as an auto-dialer…even if auto-dialer features are not used to make the call.” It reasoned that if a device’s capacity includes functions that could be added through app downloads and software additions, and if smartphone apps can introduce ATDS functionality into the device, then all smartphones would meet the statutory definition of an auto-dialer. An ATDS definition of such “eye-popping sweep” was simply a bridge too far.

The court also was concerned that the FCC’s guidance gave no clear answer on the meaning of ATDS functionality. It seemed particularly concerned with the practical implication that liability could be imposed even if a telephone system was not used to randomly or sequentially generate a call list, as “[a]nytime phone numbers are dialed from a set list, the database of numbers must be called in some order—either in a random or some other sequence.” The court thus also struck down the Order’s provision on what type of functionality a device must employ to qualify as an auto-dialer.

Reassigned Numbers: The court found that the FCC’s “one call” safe harbor was arbitrary and capricious, since a caller may have no reason to know at that point that a number has been reassigned. It vacated the reassigned numbers ruling in its entirety, finding it could not feasibly excise the one-call safe harbor, but leave in place the FCC’s interpretation that the “called party” refers to the current subscriber, and not the intended recipient. This would mean a caller is strictly liable for all calls made to the reassigned number, even without knowledge of the reassignment. This gap in guidance hopefully will be temporary, as even before the D.C. Circuit’s decision, the FCC had initiated a rulemaking on establishing a national reassigned number database that telemarketers could consult to avoid calling nonconsenting consumers with reassigned numbers.

Revocation of Consent: In enacting a “reasonable method” test for revocation, the FCC assured callers that it would not require them to undertake unduly burdensome measures in fielding revocation requests. This flexibility was an important factor in the court’s ratification of the the Order’s revocation provision. It also noted that callers could avoid TCPA liability by having easy opt-out methods to accommodate those requests, thereby making it harder for a consumer to claim he was denied a reasonable means of retracting consent. Finally, the court highlighted the FCC’s concession that its ruling did not prevent parties from contractually agreeing on revocation methods, which is in harmony with court rulings that have enforced such agreements under the law of contract.

The FCC will likely go back to the drawing board on the ATDS and reassigned numbers issues, now under the auspices of conservative Chairman Ajit Pai, who vigorously dissented from the 2015 Order. After years of heavy regulation, businesses that tele-market to consumers can expect to get a friendlier hearing and a lighter regulatory touch from Washington, D.C. But they can expect no such reprieve from class action lawyers. That should provide incentive enough for telemarketers to continue to take their TCPA compliance obligations seriously, even if they are not quite as expansive as they were before the D.C. Circuit struck down parts of the FCC’s 2015 Order.